Hey Fam, 

The Level 2 narrative is gaining momentum, with many Layer-2 solutions surpassing the daily activity of the Ethereum Mainnet by a significant margin. In addition, some Layer-2s, such as Polygon, are building Layer 3 to further scale the Mainnet. To understand the current state of Layer-2 scaling, let's take a step back and examine the brief history of all layers-2 and learn about some of the leading rollups and networks building on top of Ethereum.

As the OG smart contract Blockchain, Ethereum has several Dapps deployed, which compete for resources from the world computer. These Dapps have onboarded many users trying to leverage the opportunity and outbid others. Yield farmers and Meme coin traders are moving millions of dollars across the network, from Dapp to Dapp, to make the most profit possible. They will pay higher fees to include their transactions in the next block.

It's not just the gas fees, though; the current state of Ethereum consensus requires every validator on the network to confirm and finalise every block, which means every transaction must be executed on the chain and can't be done in parallel. As a result, transactions have to wait in the Mempool for longer, thus clogging the network even further. Ethereum has been working towards upgrading its stats with dang-sharding and parallel computation. However, these updates are still in development and require massive testing before implementation.

The Short term solution to scale Ethereum is to take the load off from the main chain to a different layer or new chain. 

As mentioned above, a few methods exist to scale Ethereum in the short term. Let's take a quick look at them.

State Channels

Consider this as the Bitcoin Lightning network built on the Ethereum Mainnet! There are dedicated smart contracts opening payment channels to send transactions. They can scale ETH transactions but get congested quickly when complex trades are executed. Like the Lightning network, users must lock tokens to open channels, all done on the Mainnet through smart contracts. As a result, the gas cost is exceptionally high.

Example: Raiden Network.

Sidechains and child chains.

This innovative approach takes the computation off the Mainnet and executes it on a side chain. These side chains often have their own validators who stake tokens on the Mainnet and submit the "state proofs" regularly. Even though they leverage Ethereum security to some extent, these side chains often have centralised validator networks or other security risks attached to them.

Example: Polygon Pos Chain and xDAI network.

Layer 2 rollups. 
So what's a Layer 2 roll Up? 

A Rollup is a scaling solution that bundles multiple transactions into one bundle and submits them on-chain. These rollups allow many transactions to be processed "off-chain" and settled on the Mainnet. In a side chain, the transaction is processed and settled "off-chain," and only the proof of settlement is submitted. 

These rollups have smart contracts on the Ethereum blockchain that act as "validators." The validators process user data and verify them with cryptographic proofs. Finally, the verified data is submitted to the Mainnet in a single bundle. Depending on how they process and submit transactions, we can divide these smart contracts into Optimistic and Zero-Knowledge rollups.

Optimistic Rollups.

Optimistic Rollups assume all the "off-chain" transactions are valid by default and don't ask for proof with the bundle. If a dispute arises, the smart contract will run all transactions on the Mainnet with the current state and check if the transaction is valid. If proven faulty, the sequencer will be slashed. Optimistic technology has many implementations, leading to Optimism and Arbitrum.

Zero Knowledge Rollups 

On the other hand, zero-knowledge rollups verify the validity of every transaction using zero-knowledge proofs, a technology that enables the network to verify transaction validity without revealing the actual data. This privacy-preserving feature is already used by chains like Zcash. ZK rollups also offer faster finality, as all submitted transactions are proven valid, eliminating the challenge period and allowing users to withdraw their funds immediately. However, generating these proofs is generally computationally intense and requires special hardware.

Example: Starknet, Zksync Era and Polygon zkEVM. 

Hey Fam, 

The Level 2 narrative is gaining momentum, with many Layer-2 solutions surpassing the daily activity of the Ethereum Mainnet by a significant margin. In addition, some Layer-2s, such as Polygon, are building Layer 3 to further scale the Mainnet. To understand the current state of Layer-2 scaling, let's take a step back and examine the brief history of all layers-2 and learn about some of the leading rollups and networks building on top of Ethereum.

As the OG smart contract Blockchain, Ethereum has several Dapps deployed, which compete for resources from the world computer. These Dapps have onboarded many users trying to leverage the opportunity and outbid others. Yield farmers and Meme coin traders are moving millions of dollars across the network, from Dapp to Dapp, to make the most profit possible. They will pay higher fees to include their transactions in the next block.

It's not just the gas fees, though; the current state of Ethereum consensus requires every validator on the network to confirm and finalise every block, which means every transaction must be executed on the chain and can't be done in parallel. As a result, transactions have to wait in the Mempool for longer, thus clogging the network even further. Ethereum has been working towards upgrading its stats with dang-sharding and parallel computation. However, these updates are still in development and require massive testing before implementation.

The Short term solution to scale Ethereum is to take the load off from the main chain to a different layer or new chain. 

As mentioned above, a few methods exist to scale Ethereum in the short term. Let's take a quick look at them.

State Channels

Consider this as the Bitcoin Lightning network built on the Ethereum Mainnet! There are dedicated smart contracts opening payment channels to send transactions. They can scale ETH transactions but get congested quickly when complex trades are executed. Like the Lightning network, users must lock tokens to open channels, all done on the Mainnet through smart contracts. As a result, the gas cost is exceptionally high.

Example: Raiden Network.

Sidechains and child chains.

This innovative approach takes the computation off the Mainnet and executes it on a side chain. These side chains often have their own validators who stake tokens on the Mainnet and submit the "state proofs" regularly. Even though they leverage Ethereum security to some extent, these side chains often have centralised validator networks or other security risks attached to them.

Example: Polygon Pos Chain and xDAI network.

Layer 2 rollups. 
So what's a Layer 2 roll Up? 

A Rollup is a scaling solution that bundles multiple transactions into one bundle and submits them on-chain. These rollups allow many transactions to be processed "off-chain" and settled on the Mainnet. In a side chain, the transaction is processed and settled "off-chain," and only the proof of settlement is submitted. 

These rollups have smart contracts on the Ethereum blockchain that act as "validators." The validators process user data and verify them with cryptographic proofs. Finally, the verified data is submitted to the Mainnet in a single bundle. Depending on how they process and submit transactions, we can divide these smart contracts into Optimistic and Zero-Knowledge rollups.

Optimistic Rollups.

Optimistic Rollups assume all the "off-chain" transactions are valid by default and don't ask for proof with the bundle. If a dispute arises, the smart contract will run all transactions on the Mainnet with the current state and check if the transaction is valid. If proven faulty, the sequencer will be slashed. Optimistic technology has many implementations, leading to Optimism and Arbitrum.

Zero Knowledge Rollups 

On the other hand, zero-knowledge rollups verify the validity of every transaction using zero-knowledge proofs, a technology that enables the network to verify transaction validity without revealing the actual data. This privacy-preserving feature is already used by chains like Zcash. ZK rollups also offer faster finality, as all submitted transactions are proven valid, eliminating the challenge period and allowing users to withdraw their funds immediately. However, generating these proofs is generally computationally intense and requires special hardware.

Example: Starknet, Zksync Era and Polygon zkEVM.